Capital will flow into US dollar assets. Given this mechanism, there’s concern over the Stock Exchange of Thailand. If the US interest rate rises, foreign capital will flow out of the Thai bourse. In the past three years, the SET has experienced such pressure.
From early May 2013 to the end of 2015, there was more than Bt368 billion worth of net foreign sales of Thai stocks, and to date, net foreign sales have been worth Bt259 billion (there were buybacks between February and September).
Therefore, the SET Index will likely absorb news of a US rate increase, and there should be no severe impact.
In addition, a study of capital movements on the Thai stock market when the US policy rate rose from 1 per cent in 2004 to 5.25 per cent in 2006 showed that capital did not flown out of the SET. On the contrary, there was a net purchase of Bt243 billion, which pushed the SET Index up 16.9 per cent.
There is a significant difference between then and now. Currently, the Thai stock market’s valuation is in the upper limit at 16-17 times, while in 2004 it was 10 times.
Therefore, if the SET Index makes corrections, that should be driven by high market PER (price-to-earnings ratio), likely from local investors and not foreign-capital outflows. Local institutional investors’ net purchases peaked during the past four years.
This week, we need to monitor the US presidential election tomorrow. There has been volatility in key stock markets around the world in the past two weeks. Most investors expect Hillary Clinton to win. However, if the unexpected happens, it could trigger selling sprees in key bourses, psychologically spilling over to the Thai stock market.
It’s believed that this issue will have a psychological impact but only in the short term. Investors should monitor this situation closely.
In this country, the economic recovery should be focused after signalling positive signs in the third quarter. However, in 4Q16, some key signs have come out negative. Most distinctively, consumer confidence dropped again, while agricultural-product prices declined. Both may affect household consumption, which contributes the most to gross domestic product.
Based on the above, the SET Index this week is expected to continue its corrections with more volatility. If the gauge dips to close to 1,450 points, there is a chance to accumulate stocks for investment. Focus on construction stocks and those with high dividend yield.
Head of Non-institutional Broking Group
The result of tomorrow’s US presidential election will be in investors’ focus but in fact it appears any immediate impact on the Stock Exchange of Thailand will be small.
The Democratic Party has a chance to claim victory in my opinion as major government policies should continue. The key issue Thailand should address is a tax treaty related to the Trans-Pacific Partnership, which is an indicator for foreign direct investment.
In the short term, market sentiment is expected to remain weak as we are moving closer to the US Federal Open Market Committee meeting in December and the long year-end holiday period. The MSCI Emerging Markets Asia excluding Japan started dipping in mid-October because of a rising spread in long-term US bonds. The SET Index is expected to move in a range of 1,470-1,500 points.
Tomorrow’s US presidential election will be in the world’s focus. Hillary Clinton was, according to the latest polls, ahead of Donald Trump by 1.7 per cent, compared with 7 per cent mid-October. If the movement continues in this direction, there will be a risk of capital flowing out of emerging markets, continuously pressuring the SET Index.
There are three likely impacts from the US presidential election.
The world’s money markets: If Clinton wins the election, markets are forecast to have a positive response. On the contrary, If Trump wins, markets will have concerns over the fiscal and monetary policies and tax measures that will attract capital to move sharply back to the US, which could affect other money markets in the world.
The US economy: If Clinton wins, the US economy in the next 12-15 months will not see much change, and Janet Yellen will likely continue her position as chairwoman of the Federal Reserve. However, if Trump wins, the US economy will see high uncertainties as a result of extreme policies like tax reductions, limits on foreign labour, and tariff barriers against products from China and elsewhere.
International trade: No matter who will be the next president, it’s believed there will be a review of the Trans-Pacific Partnership agreement. There may not be much impact on Thailand’s trade, as this country has not yet participated in the TPP. Therefore, Thailand can take more time to make a decision on this matter. However, if Trump wins, Thai businesses may face risks of foreign-exchange volatility, competitiveness and GSP (General System of Preferences) advantages.
During the last four US presidential elections, two weeks before the vote, the Dow Jones Industrial Average rose with a probability of 75 per cent and average return of 3.79 per cent, but the SET Index dropped three out of four times with an average return of minus-0.05 per cent.
Two weeks after the election, the DJIA fell with a 50-per-cent probability with an average return of minus-5.09 per cent and the SET Index declined with a 75-per-cent probability with average return of minus-3.88 per cent.
These average returns came out quite unsatisfactorily, given the US-led global financial crisis and the 2008 US presidential election. At that time, stock markets across the world plummeted dramatically, and that pulled down the averages for these four elections.